Risk considerations
Investors should note that the Xtrackers ETFs are not capital protected or guaranteed and investors in each Xtrackers ETF should be prepared and able to sustain losses up to the total capital invested. The value of an investment in an Xtrackers ETF may go down as well as up and past performance does not predict future returns. Investment in Xtrackers ETFs involve risks. For a list of related risks please click on the Risks and Terms tab.
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above market interest levels
in your portfolio
Added
driven by active management
A significant portion of private wealth worldwide is currently[1] sitting idle as cash or in term deposit accounts. Yet this “parked money” could be used to earn more interest. Investing surplus cash more thoughtfully over the long term can pay off, helping your money potentially grow and better keep pace with inflation. One opportunity for this could be Floating Rate Notes.
What are Floating Rate Notes?
Floating Rate Notes, or “floaters,” are bonds with variable interest payments — plus a premium that reflects the issuer’s credit quality. Unlike fixed-rate bonds that pay the same interest rate (coupon) for its entire lifetime until it is fully repaid , floaters adjust their interest rate on a regular schedule, typically every three months, to match current market rates. In the euro area, floaters usually reference a benchmark rate such as the 3‑month EURIBOR[2]), which closely tracks the European Central Bank’s (ECB) key interest rate. This structure creates two distinct dynamics for investors:
Rising interest rates
When interest rates rise, the prices of fixed‑rate bonds typically fall, because their fixed coupon rates become less attractive compared to newly issued bonds. Floating Rate Notes, however, adjust their coupon regularly to reflect the current interest rate environment – allowing investors to participate directly in rising interest rates.
Falling interest rates
When interest rates decline, the coupon of a floater also decreases when it is reset again at the next scheduled adjustment date. In contrast, fixed‑rate bonds can experience price gains during such periods.
Due to the regular rate adjustments, the market value of floaters tends to remain more stable than that of comparable fixed‑rate bonds — especially in periods of fluctuating interest rates. As a result, the risk of price losses when interest rates rise is reduced. At the same time, Floating Rate Notes can offer yields above ECB policy rates. The reason is that, in addition to the variable reference rate such as the ECB key rate, each floater includes a credit spread premium that compensates investors for the issuer’s credit risk.
For illustration
How the coupon rate is calculated
The credit spread is the premium investors receive for taking on the issuer’s credit risk – essentially the compensation for lending money to a company or financial institution rather than holding risk-free cash. This credit component can enable an interest advantage over cash‑like investments such as overnight deposits or overnight ETFs.
What are Floating Rate Notes ETFs?
Passive Floating Rate Notes ETFs (FRN ETFs) are exchange‑traded index funds that invest in the securities specified by the index and typically bundle hundreds of variable‑rate bonds into a single product. This provides investors with access to a diversified portfolio of often well‑known issuers with solid credit quality, combined with daily tradability, transparency, and cost efficiency.
Added return potential driven by active management
Active FRN ETFs go one step further than their passive counterparts: A professional portfolio management team actively searches for bonds that offer the best balance between potential yield spreads and risk. To achieve this, they draw on an expanded investment universe that, in addition to short‑dated floaters with repayment periods (maturities) from a few weeks up to around three years, can also include longer maturities or USD‑denominated floaters with currency hedging. Despite this broader scope, the capital is typically tied up for only a short period due to the regular interest payments – generally one to two months. This is referred to as low duration, which is often higher in traditional fixed‑rate bonds. This flexibility enables access to return sources that a passive index fund cannot capture. At the same time, active management involves the risk of underperformance. As for the expertise: DWS has been managing actively Floating Rate Notes Products for two decades – making it the European market leader in this segment.[3]
| Xtrackers ETF | ISIN | WKN | Income treatment | TER p.a. |
|---|---|---|---|---|
| Floating Rate Notes Active UCITS ETF 1C | IE000F04HGE5 | DBX0XC | Capitalising | 0.2% |
Floating Rate Notes Active ETFs: the Xtrackers approach
Fundamental analysis underpins the bond selection. The portfolio management team reviews each security based on credit quality, yield, maturity, liquidity, and country and currency risks. The objective is to generate a yield premium over the 3‑month EURIBOR that exceeds what passive strategies can deliver.[4].
Opportunities of the active approach
Through targeted security selection and a broader investment universe, there is the potential to achieve an additional yield premium compared with passive alternatives. An experienced team can also respond flexibly to market developments and actively manage risks.
Risks of the active approach
A potential excess return compared with passive strategies is not guaranteed. The active decisions made by the portfolio management team may also prove less favourable than a pure index replication.
Why invest in Active Floating Rate Notes ETFs
The reasons for investing in this asset class can be diverse. The low‑volatility, actively managed ETFs on Floating Rate Notes can allow financial reserves to be invested with a stronger focus on returns, without necessarily taking on significantly higher risks. Their low correlation with other asset classes can also make them a suitable component for building a broadly diversified portfolio.
In periods of rising inflation, floaters can offer an advantage: their returns adjust to prevailing interest rates, which can help preserve real purchasing power – provided that interest rates rise as well. This makes floaters an instrument that can respond flexibly to market movements and can maintain their return potential during phases of increasing interest rates.
Why Floating Rate Notes can prove compelling across many market environments
1 Rising interest rates
Floaters adjust their coupons — resulting in higher interest income. At the same time, their prices tend to remain more stable than those of fixed‑rate bonds, as the short interest‑rate reset period keeps interest‑rate risk low.
2 Falling interest rates
Savings and money‑market rates may often decline faster than the coupons of floaters. In such cases, Floating Rate Notes can be a useful option for investors who want to keep their investments easily accessible.
3 Stable interest rates
Floaters can provide an interest premium over cash-like investments – such as overnight deposits or overnight ETFs – due to the credit spread, while offering similar interest‑rate sensitivity but without the heightened price risk associated with longer‑dated bonds.
Between overnight deposits and the equity market
Floating Rate Notes ETFs position themselves between money‑market investments and traditional fixed‑income bonds — offering a moderate yield premium compared with standard savings or overnight deposit rates. Their risk level, as reflected by average volatility, remains significantly lower than that of ETFs investing in government and corporate bonds with mixed maturities. Compared with the risk‑return profile of the equity market, Floating Rate Notes ETFs are generally considered a more conservative investment option.
Floaters positioned between traditional money markets and equities
The chart shows the distribution yield and volatility of ETFs tracking the following indices: Solactive €STR +8.5 Daily Total Return Index (Overnight ETF), iBoxx® Euro Sovereigns Eurozone Index (Euro Government Bond ETF), Bloomberg Euro Corporate Bond Index (Euro Corporate Bond ETF), and iBoxx EUR FRN Investment Grade 0–3 Capped Index (Floating Rate Notes ETF). The distribution yield – also known as the yield to worst – indicates the annualized return investors would receive if a bond is held to maturity and all interim coupon payments are reinvested at the same rate (as of 30 November 2025). Distributions are not guaranteed. The amount of distribution payments may change or cease entirely.
Volatility is based on the daily returns of the past three years. Source: justetf.de. For the MSCI Europe Index (EUR), the annualized return and volatility for the past ten years were considered (Source: MSCI, 2025, MSCI Europe Index (EUR) Factsheet). The chart was created by DWS International GmbH, as of 31 December 2025.
And relative to the Overnight ETF?
Overnight ETFs track short term money market rates — with minimal price risk, but also without any potential additional return. Floating Rate Notes ETFs go a step further: they invest in corporate bonds and can earn an additional credit spread, as they are issued by companies and financial institutions. This risk is reflected in a yield premium over the reference rate of German government bonds of the same maturity, which is often described in theory as “risk free.” In contrast, Overnight ETFs provide access to the money market but do not take on this additional credit risk — and therefore do not benefit from any potential yield premium.
| Characteristic | Overnight ETFs | Floating Rate Notes ETFs |
|---|---|---|
Impact of Interest Rate Changes (EZB) | Changes in euro interest rates are passed onto the ETF | Since the ETF invests primarily in variable rate bonds, its yield adjusts relatively quickly in line with money market rates. |
Potential yield | Short term euro benchmark rate (€STR) | 3 month EURIBOR + credit spread |
Tradability / Liquidity | Easy trading during stock exchange opening hours (also available as an ETF savings plan). | Easy trading during stock exchange opening hours (also available as an ETF savings plan). |
Maturity | May also include securities with maturities longer than one year. Market risks associated with these securities are largely mitigated through swap transactions. These swaps then provide access to the current daily interest rate. | Primarily invested in short maturities of up to three years. |
Risk | Counterparty risk in swap based ETFs | Credit risk of the bonds held within the ETF |
Costs | 0.10 % TER | 0.12 % TER |
Source: DWS International GmbH as of 01/2025
What risks do Active Floating Rate Notes ETFs carry?
Active Floating Rate Notes ETFs, like other securities, are associated with various risks. The value of an investment may fall as well as rise, and past performance is not a reliable indicator of future results. In particular, three types of risk should be considered. First, credit risk: if the credit quality of an issuer deteriorates or the issuer defaults, this can negatively affect the price of the floater and thus the ETF. Second, the risk of rising credit spreads: if credit spreads in the market widen – for example during periods of stress – the prices of Floating Rate Notes may also be affected, although typically to a lesser extent than fixed rate bonds. And third, liquidity risk: in turbulent market environments, the tradability of individual bonds may be limited.
Key point: Interest rate risk – which strongly affects traditional fixed rate bonds – plays only a minor role for Floating Rate Notes due to their variable interest payments.
Actively managed Floating Rate Notes ETFs from Xtrackers can therefore offer a smart solution for a range of different scenarios. Whether you want to park liquidity in the short term, aim to earn a potential return slightly above money market rates over the long term, or seek to mitigate inflation risks – these ETFs can serve as a versatile option.
You can find more information about the ETF in the product overview:
Xtrackers Floating Rate Notes Active ETF
Further information on how Active ETFs work and on the range of Active ETFs offered by Xtrackers can be found on the Xtrackers Active ETFs theme page.